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Tech groups are suing to halt Maryland’s new digital services tax

Tech groups are suing to halt Maryland’s new digital services tax


An early standoff for state-level taxes on digital ads

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A coalition of tech and business groups have joined together for a lawsuit challenging Maryland’s newly passed digital services tax, as first reported by The Washington Post. The lawsuit, filed in federal district court in Maryland, argues the state tax is preempted by federal law and violates various constitutional prohibitions against state taxes on out-of-state activity.

The lawsuit is led by the US Chamber of Commerce, which is joined by three tech industry groups: Internet Association, NetChoice, and Computer & Communications Industry Association. Membership varies, but all three associations count Google, Facebook, and Amazon as members, as well as other tech giants.

The Maryland law would establish a new gross revenue tax on digital advertising undertaken by non-media companies — targeted squarely at the ad revenue collected by tech giants like Facebook and Google. The tax rate varies depending on the size of the company, but it would range as high as 10 percent for companies with global annual revenue higher than $15 billion.

Prior to passage, a number of state politicians raised concerns about the legality of the bill — most notably Maryland Attorney General Brian Frosh, who identified “some risk that a reviewing court would find that the tax is unconstitutional” in a public letter in April.

Maryland Gov. Lawrence Hogan opposed the bill, but the state’s General Assembly overrode his veto to pass it into law on February 12th. The tax is set to go into effect 30 days after passage unless the lawsuit’s injunction is successful.

Digital tax proposals have become increasingly common as tech giants have grown more profitable and less popular — but the taxes remained hotly contested by the tech industry. A UK digital service tax passed in 2020 resulted in enterprise rate hikes from many US tech companies, while the staggered implementation of France’s digital services tax has sparked a standoff with US trade officials.

Then-presidential candidate Andrew Yang proposed a US digital services tax as part of his 2020 primary campaign, but the idea has failed to gain traction among US lawmakers.